Correlation Between Check Point and HDFC Bank

Can any of the company-specific risk be diversified away by investing in both Check Point and HDFC Bank at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Check Point and HDFC Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Check Point Software and HDFC Bank Limited, you can compare the effects of market volatilities on Check Point and HDFC Bank and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Check Point with a short position of HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Check Point and HDFC Bank.

Diversification Opportunities for Check Point and HDFC Bank

0.8

Correlation Coefficient

Check Point  HDFC Bank

Very poor diversification

The 3 months correlation between Check and HDFC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited and Check Point is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Check Point Software are associated (or correlated) with HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank Limited has no effect on the direction of Check Point i.e., Check Point and HDFC Bank go up and down completely randomly.

Pair Corralation between Check Point and HDFC Bank

Assuming the 90 days trading horizon Check Point Software is expected to generate 2.16 times more return on investment than HDFC Bank. However, Check Point is 2.16 times more volatile than HDFC Bank Limited. It trades about 0.26 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.15 per unit of risk. If you would invest  45,135  in Check Point Software on October 6, 2024 and sell it today you would earn a total of  13,619  from holding Check Point Software or generate 30.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Check Point Software  vs.  HDFC Bank Limited

Check Point Software

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Check Point sustained solid returns over the last few months and may actually be approaching a breakup point.

HDFC Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and HDFC Bank

The main advantage of trading using opposite Check Point and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Check Point position performs unexpectedly, HDFC Bank can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in HDFC Bank will offset losses from the drop in HDFC Bank's long position.

The idea behind Check Point Software and HDFC Bank Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.